India: Changes To The Arbitration Landscape In India

The President of India has enacted an ordinance to
amend the Arbitration and Conciliation Act, 1996. The changes
include conferring original jurisdiction exclusively on High Courts
to deal with the enforcement of and challenge to international
arbitration awards as well as prescribing timelines to streamline
arbitration and related court proceedings.

On 23 October 2015, the President of India has enacted an
ordinance (Ordinance) to amend the Arbitration and
Conciliation Act, 1996 (Arbitration Act). These
changes are effective immediately and clearly demonstrate the
government's desire to gain the confidence of the business and
investor community.

The Arbitration Act was enacted by the Indian parliament to
provide an effective and expeditious dispute resolution framework,
which would inspire confidence in the Indian dispute resolution
system. The objective was to provide for an arbitral procedure
which was fair, efficient and capable of meeting the needs of the
specific arbitration and at the same time minimizing the
supervisory role of courts in the arbitral process.

Though the Arbitration Act has been in force for nearly two
decades, it has been afflicted with various problems including
those of high costs and delays, especially due to certain judicial
precedents that prevented India from positioning itself as an
arbitration-friendly jurisdiction. Therefore, to ensure smooth and
prompt settlement of domestic as well as international commercial
disputes, a need to amend the Arbitration Act was increasingly
felt.

The Ordinance introduces several changes in the
Arbitration Act. Some of the key changes are noted
below:

1. An arbitration agreement may now be concluded by way of
electronic communication between parties.

2. The 'Court' competent to entertain any proceedings in
connection with an international commercial arbitration, will be
the High Court of the concerned State, having territorial
jurisdiction. Therefore, courts below the High Court will not have
any jurisdiction to deal with matters concerning international
commercial arbitrations.

3. Entities registered in India, even if their central
management and control is outside India, will be treated as
domestic parties. Consequently, an arbitration involving such an
entity and another Indian entity will not be considered an
international commercial arbitration.

4. Parties to an international commercial arbitration (including
those seated outside of India) may now seek interim measures of
protection from Indian Courts under Section 9 of the Arbitration
Act, unless there is an express agreement between the parties to
the contrary. Any such order passed by an Indian Court having
original jurisdiction under Section 9 will be appealable. However,
no second appeal will lie from the decision of the appellate
court.

5. The arbitral tribunal's powers to grant diverse interim
measures of protection have been widened. The arbitral tribunal
will now have powers akin to a Civil Court in this regard.
Moreover, an interim order of an arbitral tribunal granting such
measures will be enforceable in the same manner as a decree of a
Civil Court.

6. A judicial authority, on application by one of the parties to
an arbitration agreement, will refer parties to arbitration, only
after a prima facie examination of whether or not such arbitration
agreement exists. Hence, courts are no longer empowered to make
conclusive determinations regarding the existence of an arbitration
agreement.

7. The qualifications and conflict of interest requirements for
appointment of an arbitrator have been made more stringent:

(a) A prospective arbitrator is now mandated to make a written
disclosure in the form prescribed in the Ordinance as to any
circumstances which may give rise to doubts regarding his
impartiality.

(b) A new schedule (Fifth Schedule) has been added containing
express grounds which shall guide the Court appointing an
arbitrator in determining whether such circumstances exist.

(c) A new schedule (Seventh Schedule) has also been added which
lays down grounds on which an arbitrator will become ineligible for
appointment. However, in order to maintain the status quo, these
requirements shall not apply to arbitrators who have already been
appointed before the commencement of the Ordinance. Parties may
also waive these grounds for ineligibility by an express agreement
in writing.

8. A model schedule of fees (Fourth Schedule) has been
introduced which the High Courts are to take into account before
framing rules regarding the determination of an arbitrators
fees.

9. Various timelines have been put in place and procedures have
been streamlined for the speedy and effective conclusion of
arbitration proceedings as well as the disposal of
applications/petitions:

(a) An application for the appointment of an arbitrator is now
required to be disposed of by the Supreme Court or High Court, as
the case may be, within 60 (sixty) days from the date of service of
notice of the application on the opposite party.

(b) In case a respondent fails to communicate his statement of
defence, the arbitral tribunal now has the discretion to treat his
right to submit a statement of defence as forfeited.

(c) An arbitral tribunal is now obligated to make an award
within a period of 12 (twelve) months from the date it enters into
the reference. This period may be extended by mutual consent of the
parties up to a period of 6 (six) months. Thereafter, it can only
be extended by the Court, on sufficient cause.

(d) An application for setting aside an award under Section 34
of the Arbitration Act is required to be disposed of by the Court
within a period of 1 (one) year. Significantly it has been
clarified that, the mere filing of an application for challenging
the award would not automatically stay execution of the award.

(e) The arbitral tribunal is obligated to ensure that, as far as
possible, oral hearings for the presentation of evidence or for
oral arguments are held on day-to-day basis.

(f) A new section has been introduced providing for a fast track
procedure wherein parties may mutually opt to have their disputes
settled solely on the basis of written pleadings and documents.
Under this procedure, the tribunal is obligated to make an award
within 6 (six) months from the date it enters into the
reference.

10. The Ordinance has clarified the existing position of law
that a challenge to an arbitral award, on the ground of public
policy can only be maintained if it is contrary to the fundamental
policy of Indian Law and will not entail a review on the merits of
the dispute.

11. The Ordinance underscores that the arbitrator will award
actual costs reasonably incurred towards legal fees, fees and
expenses of the arbitrators, the administrative fee in relation to
the arbitration process. Factors such as conduct of the parties,
delay in the disposal of arbitration proceedings on account of any
frivolous counterclaim, refusal to accept a reasonable offer to
settle the dispute, would be relevant in this regard.

Many of the changes brought in through the Ordinance recognize
established norms and principles of domestic as well as
international commercial arbitration at par with arbitration
friendly destinations such as England, Singapore, France and Hong
Kong. It is expected that the Ordinance will eventually be formally
legislated through the parliamentary process substantially in its
current form.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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